![]() “Almost in all parameters, our vulnerability is far less than most of the emerging market economies,” the Financial Times quoted Das as saying at a press briefing after the rates meeting on Friday, 30 September. However, RBI Governor Shaktikanta Das is confident that India’s over $500bn reserves remain more than adequate. Similar action has been taken in Sri Lanka and Pakistan, sending the countries into financial distress. The RBI’s foreign exchange reserves have fallen by around $100bn as the central bank defends the rupee, according to a recent report by Bloomberg. The RBI cut its economic outlook for the financial year from 7.2% to 7%, maintaining the 6.7% forecast on inflation. The RBI has raised rates by 50 basis points over the past three central bank meetings, taking the repurchase rate to 5.9% as it attempts to calm inflation. This, along with expectations that the Fed will continue hiking rates, possibly to 4.5% by the end of the year, means that USD strength could continue. The USD has rallied hard across the board as the US Federal Reserve (Fed) aggressively hikes interest rates to tame 40-year high inflation. US dollar strength has been a key driver in USD/INR and many emerging market currency pairs. Trade Now What has been driving the USD/INR exchange rate? Any weakening or strengthening of the US dollar can affect the USD/INR exchange rate. One of the most significant factors that moves the USD/INR pair is the value of the base currency, the USD. Rising oil prices could pull the value of the rupee lower, while falling oil prices could increase its value. Given that India imports over 80% of its oil requirements, the country’s economy and the rupee are sensitive to movements in the oil price, such as that of West Texas Intermediate ( WTI) and Brent Crude. When demand for Indian goods is high and exports are strong, demand for rupees rises.Īnd when exports are weak and imports are high, there is a greater demand for USD. The Indian trade balance is also an important influence on the rupee. Healthy foreign institutional investment (FII) flows into India often strengthen the rupee against the USD. Depleted reserves can hurt demand for a currency. The central bank uses reserves to help maintain a steady rate. These reserves are considered a buffer against factors that could negatively affect a currency’s exchange rate. Foreign exchange reservesįoreign exchange reserves can affect a currency’s value. Whether the RBI raises or cuts interest rates could depend on whether inflation is rising or falling and how well the economy is performing. Meanwhile, a more dovish stance and low interest rates are synonymous with a weaker rupee. ![]() When the Reserve Bank of India hikes interest rates aggressively, this can lift the INR. The US Dollar Index ( DXY), which measures the USD versus a basket of six major peers, including the pound, euro and yen, rose to a 20-year high this year.Īs with currencies across the globe, central bank action can strongly influence a currency’s movement. The rupee fell to an all-time low of 83.29 on 20 October amid USD strength as investors expect the US Federal Reserve ( Fed) to hike interest rates as it continues to battle high inflation. The rupee selloff has picked up pace, making it one of the worst-performing currencies in Asia over the past month. The Indian rupee ( INR) has fallen over 10% against the US dollar ( USD) this year, dropping to a fresh all-time low of 83 amid a stronger USD and despite intervention from the Reserve Bank of India (RBI), the country’s central bank. What has been driving the USD/INR exchange rate?.US30 US Wall Street 30 (USA 30, Dow Jones)
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